The IMF is proposing increased fiscal and banking integration in Europe, and part of that goal is creating a ‘rainy day fund’ for countries to draw on as a sort of insurance policy, IMF Spokesman Gerry Rice told reporters Thursday in Washington.
The proposal was put forth in a speech Monday in Berlin by IMF Managing Director Christine Lagarde.
The IMF-proposed fund (aka Central Fiscal Capacity, CFC) would allow euro zone countries to save money in good times and use it when next economic downturn hits – with features to avoid permanent transfers, Rice said.
Rice made it clear that the proposed fun is different from the ESM, which helps countries during a crisis. And it will include caps to payments as well.
“We’re actually proposing a limit, a cap, on how much countries need to contribute in total, so there is a cap on that. There is also a limit, a cap, on how much a country can receive. So just by way of clarification, I mentioned those points,” Rice pointed out.
“The bottom line is that we think a central fiscal capacity could indeed be an important element of strengthening the Eurozone going forward. We estimate that such a fiscal capacity along the lines that we have proposed could reduce the negative effects on output during a downturn by more than 50 percent. So it is significant and the costs are relatively moderate around 0.35 percent of GDP.”
The IMF announced that Managing Director Christine Lagarde will attend a series of events in China from April 9-12. She will spend two days at the BOAO Forum, then will hold the regular Spring Meetings ‘curtain raiser’ agenda setting speech at Hong Kong University on April 12.
Then on April 13 she will attend a joint IMF-People’s Bank of China conference on China’s ‘Belt and Road Initiative.’
“What we’ve said about the Belt and Road initiative is that we think it’s a very important initiative that we think it can foster regional cooperation including in, in trade and investment, and finance, and it could indeed make a very significant contribution in terms of infrastructure, connectivity to countries and, again, all of this supporting trade and growth,” he said.
Rice said that finding a balanced approach to investment spending is key to the success of the program aimed at funding development among China’s economic partners.
“Like other major initiatives of this type, it can entail risks including issues of debt sustainability and spillovers to other countries, as well as, you know, risks for China including credit risk. So, the key is to balance, obviously, the potential benefits which we see with the potential risks.”
And Tunisia will be getting its agreed upon disbursement of aid funding from the IMF following a Board meeting last week, Rice announced.
“There was agreement to disburse another installment under the extended fund facility which is bringing total disbursements by the IMF to Tunisia under this arrangement to well over $900 million.”
Tunisia has agreed to more frequent review of its progress, Rice said, which should bolster international lenders’ confidence toward the country.
“So, The board also approved the Tunisian authorities request to move toward quarterly reviews from the current semi-annual schedule. Though, I would underline overall disbursements available throughout the program remain unchanged.”